Renewable Energy Equipment and Services in India: A Strategic Reference, 2006

How to Strategically Evaluate India Perhaps the most efficient way of evaluating India is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to renewable energy equipment and services are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”). Framework for Prioritizing Countries Demand/Market Potential Driven Firm Relative Accessibility Accessibility/Supply Averse Firm In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm). Latent Demand and Accessibility in India This report provides a detailed overview of factors driving latent demand and accessibility for renewable energy equipment and services in India. Latent demand is largely driven by economic fundamentals specific to renewable energy equipment and services. This topic is discussed in Chapter 2 using work carried out in India on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for renewable energy equipment and services in India. I use the term “micro” since the discussion is focused specifically on renewable energy equipment and services. Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in India. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in India. The numbers are only indicative of an average firm whose primary activity is in India. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in India. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “steam, gas and hydraulic turbines and turbine generator set units”, as defined in Chapter 3. Again, while “steam, gas and hydraulic turbines and turbine generator set units” does not exactly equate to “renewable energy equipment and services”, it nevertheless gives an indicator of how India compares to other countries for a proxy adjacent category along various dimensions. Chapter 4 deals with macro-accessibility and covers factors that go beyond renewable energy equipment and services. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in India: Openness to Trade in India Openness to Direct Investment in India Local Marketing and Entry Strategy Alternatives Local Human Resources Local Risks Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in India. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering India. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.

1 INTRODUCTION & METHODOLOGY 1 1.1 What Does This Report Cover? 1 1.2 How to Strategically Evaluate India 1 1.3 Latent Demand and Accessibility in India 3 2 RENEWABLE ENERGY EQUIPMENT AND SERVICES IN INDIA 5 2.1 Latent Demand and Accessibility: Background 5 2.2 Latent Demand: Market Composition 5 2.2.1 Major Sectors 6 2.3 Market Data 8 2.4 Latent Demand: Leading Segments 8 2.5 Key Suppliers 8 2.6 Prospective Buyers 9 2.7 Accessibility: Market Entry 9 2.7.1 Market Issues and Obstacles 9 2.8 Key Contacts 10 3 FINANCIAL INDICATORS: STEAM, GAS AND HYDRAULIC TURBINES AND TURBINE GENERATOR SET UNITS 11 3.1 Overview 11 3.1.1 Financial Returns and Gaps in India 12 3.1.2 Labor Productivity Gaps in India 15 3.1.3 Limitations and Extensions 15 3.2 Financial Returns in India: Asset Structure Ratios 16 3.2.1 Overview 16 3.2.2 Assets - Definitions of Terms 16 3.2.3 Asset Structure: Outlook 19 3.2.4 Large Variances: Assets 20 3.2.5 Key Percentiles and Rankings 23 3.3 Financial Returns in India: Liability Structure Ratios 38 3.3.1 Overview 38 3.3.2 Liabilities and Equity - Definitions of Terms 38 3.3.3 Liability Structure: Outlook 40 3.3.4 Large Variances: Liabilities 41 3.3.5 Key Percentiles and Rankings 44 3.4 Financial Returns in India: Income Structure Ratios 55 3.4.1 Overview 55 3.4.2 Income Statements - Definitions of Terms 55 3.4.3 Income Structure: Outlook 57 3.4.4 Large Variances: Income 58 3.4.5 Key Percentiles and Rankings 61 3.5 Financial Returns in India: Profitability Ratios 74 3.5.1 Overview 74 3.5.2 Ratios - Definitions of Terms 74 3.5.3 Ratio Structure: Outlook 76 3.5.4 Large Variances: Ratios 77 3.5.5 Key Percentiles and Rankings 80 3.6 Productivity in India: Asset-Labor Ratios 95 3.6.1 Overview 95 3.6.2 Asset to Labor: Outlook 96 3.6.3 Asset to Labor: International Gaps 97 3.6.4 Key Percentiles and Rankings 100 3.7 Productivity in India: Liability-Labor Ratios 115 3.7.1 Overview 115 3.7.2 Liability to Labor: Outlook 116 3.7.3 Liability and Equity to Labor: International Gaps 117 3.7.4 Key Percentiles and Rankings 120 3.8 Productivity in India: Income-Labor Ratios 131 3.8.1 Overview 131 3.8.2 Income to Labor: Outlook 132 3.8.3 Income to Labor: Gaps 133 3.8.4 Key Percentiles and Rankings 136 4 MACRO-ACCESSIBILITY IN INDIA 149 4.1 Executive Summary 149 4.2 Dynamic Markets 150 4.2.1 Agriculture 150 4.2.2 Industry 150 4.2.3 Services 151 4.2.4 Insurance 151 4.2.5 Healthcare 151 4.2.6 Pharmaceuticals 151 4.2.7 Broadcasting 152 4.2.8 Software Services 152 4.3 Economic Fundamentals and Dynamics 152 4.3.1 Government Intervention Risks 152 4.3.2 Infrastructure Development 153 4.3.3 Regional Economic Integration 155 4.4 Political Risks 155 4.4.1 Economic Relationship with the United States 155 4.4.2 Political Risks 155 4.4.3 The Political System 156 4.5 Marketing Strategies 156 4.5.1 Distribution Channel Options 156 4.5.2 Agents and Distributors 158 4.5.3 Franchising Activities 159 4.5.4 Direct Marketing Options 161 4.5.5 Joint Ventures and Licensing Options 162 4.5.6 Technology Transfers 166 4.5.7 Creating a Sales Office 166 4.5.8 Selling Strategies 169 4.5.9 Advertising and Trade Promotion 170 4.5.10 Major Indian Business Associations and Organizations 173 4.5.11 Pricing Issues 173 4.5.12 Government Procurement 175 4.5.13 Hiring Local Counsel 176 4.5.14 Performing Due Diligence and Checking Bona Fides 177 4.6 Import and Export Regulation Risks 180 4.6.1 Tariff and Non-Tariff Barriers 180 4.6.2 Tariff Schedule 180 4.6.3 U.S.-Imposed Export Controls 182 4.6.4 Licenses Required for Imports 183 4.6.5 Customs Regulations and Contact Information 185 4.6.6 Entering Temporary Imports 187 4.6.7 Special Import/Export Requirements and Certifications 187 4.6.8 Labeling Issues 187 4.6.9 Warranty and Non-Warranty Repairs 188 4.6.10 Free Trade Zone 188 4.6.11 Adherence to Free Trade Agreements 190 4.7 Investment Climate 190 4.7.1 Openness to Foreign Investment 190 4.7.2 Sector-Specific Guidelines for Foreign Direct Investment (FDI) 191 4.7.3 Conversion and Transfer Policies 195 4.7.4 Expropriation and Compensation 195 4.7.5 Dispute Settlement 195 4.7.6 Performance Requirements and Incentives 196 4.7.7 Right to Private Ownership and Establishment 196 4.7.8 Intellectual Property Risks 197 4.7.9 Transparency of the Regulatory System 197 4.7.10 Capital Market Risks 197 4.7.11 Corruption 198 4.7.12 Bilateral Investment Agreements 199 4.7.13 OPIC and Other Investment Insurance 199 4.7.14 Labor 199 4.7.15 Free Trade Zone Options 200 4.8 Trade and Project Financing 200 4.8.1 The Banking System 200 4.8.2 Foreign Exchange Control Risks 202 4.8.3 Financing Export Strategies 203 4.8.4 Availability of GSM Credit Guarantees 204 4.8.5 The Export-Import Bank of the United States (Ex-Im Bank) 205 4.8.6 The Overseas Private Investment Corporation (OPIC) 207 4.8.7 Trade and Development Agency 208 4.8.8 Asian Development Bank 209 4.8.9 The World Bank 210 4.8.10 International Finance Corporation (IFC) 211 4.8.11 The Multilateral Investment Guarantee Agency (MIGA) 211 4.8.12 U.S. Banks 211 4.8.13 Regional MBD/IFI Offices 212 4.9 Travel Issues 213 4.9.1 Local Business Practices 213 4.9.2 Travel Advisories 215 4.9.3 Areas of Instability 216 4.9.4 Crime Information 218 4.9.5 Health 218 4.9.6 Travel Conditions 219 4.9.7 Legal Issues 219 4.9.8 Infrastructure for Conducting Business 220 4.9.9 Country Data 222 4.10 Key Contacts 224 4.10.1 Important Web Sites of U.S. Organizations 225 4.10.2 U.S. Embassy Contacts 226 4.10.3 Chambers of Commerce 228 4.10.4 Trade Associations 230 4.10.5 Government Agencies 232 4.10.6 Multilateral Development Bank Offices in India 238 4.10.7 Other Useful Contacts 238 4.10.8 Market Research Firms 240 5 DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS 243 5.1 Disclaimers & Safe Harbor 243 5.2 Icon Group International, Inc. User Agreement Provisions 244

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